$1.77b loan was granted to the Shanghai tycoon despite risk-management warnings from senior bank officials BOC Hong Kong (Holdings) did not know the net worth of Chau Ching-ngai when it granted a $1.77 billion loan to the Shanghai property tycoon and relied on his 'good faith and honesty' to raise cash to repay the bank. The loan was granted despite 'serious and unresolved' concerns of the bank's chief risk officer and hinged on Chau's promise to inject property assets into Shanghai Land Holdings, a BOCHK-appointed investigation committee said yesterday. Bank officials involved allowed themselves to be pressured by Chau's urgency to close the deal but followed procedures and acted in the interests of BOCHK, according to the findings. The incident was dubbed a 'lapse in judgment in a particular instance'. It is possible that Chau flouted listing and takeover rules in his efforts to raise cash to repay the bank, exposing the bank to 'speculation that the bank and officials may have facilitated him'. Chau has been in detention on the mainland since May in connection with a corruption investigation related to the Shanghai property market and a number of questionable loans. Last night, he was formally arrested for share manipulation. The probe put the spotlight on the $1.77 billion BOCHK loan made to Chau's flagship, New Nongkai Global Investments, to fund a buyout of Shanghai Land. There is still $740 million outstanding. At about the same time, former BOCHK chief executive Liu Jinbao was suddenly recalled to Beijing. The board of BOCHK has 'no knowledge who the authorities are or what they are investigating', according to committee convenor and former Securities and Futures Commission chief Anthony Neoh. The bank has not contacted the Independent Commission Against Corruption, which is conducting a probe into Chau's activities. 'We are not saying there has been no suspicion of corruption, but we have not been able to find any evidence.' The loan was deemed to have been made despite strong reservations from the risk management department. There was inadequate information on Chau's net worth and the bank was left with a 'convoluted way of getting paid back', Mr Neoh said. Chau convinced BOCHK to rely on Shanghai Land shares as core collateral. He insisted that a charge on properties to be injected into the listed company could be deemed 'connected transactions' under the listing rules. In taking control of Shanghai Land, Chau was obliged to make a mandatory offer to shareholders. During this process, he was required to divulge any specific plans. The Shanghai Land offer document states: 'The offeror has no specific plans with respect to any injection of assets.' There were, however, specific properties identified as asset injections which formed the basis of the BOCHK loan agreement. Listing rules require that as they were connected transactions, shareholder approval would have been necessary when the offer was made. 'Did he evade the rules? We don't know if he did,' Mr Neoh said. 'The bank has to own up to this as being a potential risk. If there is an investigation, the bank will give every help to the authorities.' Deputy chief executive Or Man Ah - also de facto chairman of the credit committee - proposed and argued strongly for the loan despite persistent concerns of the risk management department, in particular the protests of Mao Xiaowei, chief risk officer. Mr Mao raised with Mr Or the possibility of the bank rejecting the loan. Mr Mao 'briefed the former chief executive on a number of occasions about his concerns', but Mr Liu endorsed the loan on April 23 last year. Former chairman Liu Mingkang did bring up the concern of potential conflict between the heads of business generation and risk management, but Mr Liu decided 'not to implement the chairman's proposals'. In his anxiety to capture business for the bank, Mr Or exposed BOCHK to credit risk 'disproportionate to the rewards' from the loan. Mr Or has applied for early retirement, it was announced yesterday. The board accepted, noting that he 'readily accepted his responsibilities'.